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[9/4/2020] Putting Apple’s $ 180 Billion Decline in Perspective
Apple’s (NASDAQ: AAPL) market capitalization fell by a whopping $ 180 billion on Thursday, after the shares fell 8% to about $ 121 a share due to the technology-driven selloff. In perspective, Apple’s drop in a single day is more than the market capitalization of oil giant Exxon Mobil, more than Nike, and almost as much as American Express and Boeing combined. That said, Apple shares are still up 60% this year and they remain the most valuable publicly traded American company, with a market capitalization of roughly $ 2.1 trillion. So is Thursday’s sell-off point to further losses for Apple?
See our analysis at Putting Apple’s $ 180 Billion Decline in Perspective to see how Apple’s valuation and fundamentals stack up against some of the largest US listed companies.
Although Apple shares could remain at current levels of around $ 121, driven by anticipation around the iPhone 5G, which will be presented in the coming weeks, the growth of the services business and wearable devices and, in general, valuations. Higher for stocks, we believe stocks are still overvalued. In perspective, Apple is trading at roughly 37 times projected 2020 results, down from a multiple of just 17 times in 2019. The last time Apple’s P / E was around these levels was in 2007, when the first was launched. iPhone and consequently Apple increased revenue at a compound annual rate of 45% over the next five years. In the current scenario, we believe that it is highly unlikely that Apple will be able to sustain a double-digit growth rate in the medium and long term, given the saturated iDevices market.
[8/25/2020] Does Apple’s soaring P / E indicate much better days ahead?
Shares of Apple (NASDAQ: AAPL) have extended their rally, rising about 30% since the end of July to levels around $ 500 currently. The stock is up about 65% so far this year and has more than doubled from its March lows. In fact, Apple’s P / E multiple has soared from 17x in 2019 to about 39x currently based on projected 2020 results. Now, P / E multiples generally reflect market expectations about future growth prospects for a company. For example, the last time Apple’s P / E was around these levels was in 2007, when the first iPhone was launched, and as a result, Apple increased its revenue at a compound annual rate of 45% for the next five years. . Similarly, the P / E of Microsoft shares jumped from levels of around 14x in 2014 to over 28x in 2015, as investors anticipated growth to pick up due to the company’s transition to the cloud ( this worked well, with Microsoft’s revenue growth more than doubling to 12% annually between FY’16 and FY’20, compared to 5.5% in FY’12-FY’16). So does Apple’s currently rising P / E multiple mean much better days ahead?
We do not believe it. Apple’s annual revenue growth rate slowed to nearly 3% over the past five years (FY’15 to FY’20E). Although growth should improve from current levels, driven by the launch of new 5G iPhones and the continued expansion of Apple’s wearable devices and services business, maintaining a double-digit growth rate in the medium and long term will be challenging, given the saturated market for iDevices. . So why are stocks rebounding? There are other factors at play, namely a lower perceived risk to Apple and the low interest rate environment. Investors are treating Apple as a safe haven during the current crisis, due to its strong balance sheet and sizeable share buybacks that could support its share price. Separately, overall stock market valuations have skyrocketed with the S&P trading at about 30 times earnings, up from 25 times earlier this year, due to the low interest rate environment and the infusion of liquidity through of the government stimulus. []
Our dashboard Why is Apple’s Stock Three-fold? It breaks down the main drivers of Apple’s growth over the past three years.
[7/17/2020] A Reality Check of the Three Trends Driving Apple’s P / E
Apple’s (NASDAQ: AAPL) market capitalization has nearly doubled, from roughly $ 900 billion at the end of 2017 to about $ 1.7 trillion today. Now, looking only at Apple’s fundamentals, the numbers really don’t add up. Apple’s revenue and net profit increased less than 15% during this period, with revenue growing by approximately $ 30 billion and profits increasing $ 7 billion. Investors have valued Apple more, however, with its P / E expanding from roughly 18 times at the end of 2017 to about 32 times today. There are three broad narratives driving Apple’s multiple expansion, namely the pending launch of the iPhone 5G, strong growth in services, and Apple’s position as a safe-haven stock. While these factors make general sense, there are some real risks that investors should be aware of.
Our board What factors drove a 135% change in Apple stock between 2017 and now? looks at the key factors that drove Apple’s stock price appreciation.
The iPhone 5G: Investors are counting on the iPhone 5G, launching this fall, to jumpstart iPhone shipments. However, has an update in wireless technology really boosted iPhone sales in the past? Not quite. We see Apple’s iPhone shipping numbers respond better to major design revisions and form factor changes than to major wireless updates. For example, looking back at fiscal 2013, the year Apple released the iPhone 5, its first 4G phone, shipments expanded just 20% year-over-year, down from the year before when shipments grew by 73. %. Apple saw iPhone shipments grow 37% stronger during fiscal 2015 when the larger-screen iPhone 6 was released. With this in mind, there is a chance that sales will also remain muted during the 5G cycle if the devices look and feel similar to the iPhone 11 series. Also, with the ongoing pandemic, people can see little reason to upgrade. to expensive smartphones with the latest cameras and wireless standards as they spend more time at home.
Apple services business: Services have played an important role in Apple’s share price growth, thanks to its wide margins and revenue growth. However, there are some key risks here too. We estimate that about $ 28 billion of Apple’s total $ 46 billion in service revenue in fiscal 2019 came through commissions, essentially taking a portion of app sales, subscriptions, and traffic acquisition payments from search engine providers like Google. That’s a whopping 60% of service revenue. Why is this risky for Apple? First, Apple could face antitrust risks given its market power in this space. Second, digital service providers can also stop in-app subscriptions from Apple devices to avoid Apple’s cut, just like Netflix did in early 2019. Sure, Apple has other services that are growing rapidly, like Apple. TV + video transmission, but margins. it will be much lower compared to the commissions, which are probably almost pure earnings. Our board Apple Service Revenue Breakdown Estimates revenue figures for AppStore, Apple Music, Apple TV +, iCloud, third-party subscriptions, licenses, Apple Care, and Apple Pay.
Apple as a safe haven: Investors increasingly treat Apple shares as a safe haven during the current crisis, due to its strong balance sheet and the sizeable share buybacks that support its share price. However, Apple is certainly far from being a risk-free investment. On the one hand, if the Covid-19 crisis worsens, Apple’s sales and cash flows could come under pressure that hurts its share price. On the other hand, if Covid-19 is contained and the broader economy recovers strongly, investors could start to backtrack toward riskier assets, reducing demand for Apple shares.
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